THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

PAULA ZAHN, CNN ANCHOR: Good evening, everybody. Thank you for being with us tonight. Here's what we're bringing out in the open. Breaking news: Don Imus is losing his TV show and losing advertisers. Is his career a lost cause?

Also: what North Carolina's attorney general calls a tragic rush to accuse. We have got the inside story of how the Duke lacrosse case simply fell apart.

And, in our weeklong series "Debtor Nation": Who lets this woman buy a quarter-of-a-million-dollar home on a $10-an-hour job?

Out in the open first, though, the breaking news tonight. The axe falls on Don Imus' cable TV show. Just hours ago, NBC said it would cancel the simulcast of his radio show because of his racist and sexist insult against the Rutgers University women's basketball team.

As you probably know, Imus has apologized repeatedly for that, but the storm of outrage now has advertiser after advertiser running away from him. And, when advertisers go away, that's when a celebrity really knows he's in trouble.

Allan Chernoff has the latest for you tonight.

(BEGIN VIDEOTAPE)

ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT (voice-over): Don Imus' apologies could not undo the damage of his offensive comment last week, when he said this about the Rutgers women's basketball team.

(BEGIN VIDEO CLIP, "IMUS IN THE MORNING")

DON IMUS, RADIO TALK SHOW HOST: That's some nappy-headed hos.

(END VIDEO CLIP)

CHERNOFF: NBC News says, effective immediately, it will no longer simulcast Imus' radio program, adding, in a statement: "What matters to us most is that the men and women of NBC Universal have confidence in the values we have set for this company. This is the only decision that makes that possible."

On the air this morning, Imus indicated that he believed his career was threatened. (BEGIN VIDEO CLIP, "IMUS IN THE MORNING")

IMUS: I don't need this job. I don't want this to be the final thing I do in what has -- what has been a remarkable career. And I'm a good and decent person. And I don't have to -- for example, I don't need a come-to-Jesus moment.

(END VIDEO CLIP)

CHERNOFF: Imus is still employed by CBS Radio, for now. He's been trying to save his job for the past few days, repeatedly apologizing for his comments about the Rutgers team.

(BEGIN VIDEO CLIP, "IMUS IN THE MORNING")

IMUS: I'm enormously grateful that they have agreed to let me come out and talk to them. And...

(END VIDEO CLIP)

CHERNOFF: But, as fast as Don Imus was backing away from his offensive comments, advertisers were backing away from him.

General Motors, GlaxoSmithKline, Sprint Nextel, and American Express all said today they're pulling ads from his broadcast. Others advertisers say they're evaluating whether to drop Imus.

BOB GARFIELD, ADVERTISING ANALYST: He's in freefall. And advertisers are very protective of their -- their brands. They have spent billions of dollars building them, and they certainly don't want them to be harmed.

CHERNOFF: There's more pressure to come. African-American activists are planning this letter to Imus' remaining advertisers, demanding they withdrawal sponsorship. And feminists announced a similar campaign today at a rally at Rutgers University.

ELEANOR SMEAL, PRESIDENT, FEMINIST MAJORITY FOUNDATION: I'm very proud to tell you that the feminist movement has already distributed over 30,000 e-mails. And we're just getting cranked up.

CHERNOFF: CBS is suspending Imus for two weeks, beginning Monday.

But corporate board member Bruce Gordon says, the consequences should be more severe.

(on camera): What should happen to Don Imus?

BRUCE GORDON, DIRECTOR, CBS CORPORATION: His comments should cost him his job. It's just -- it's just that simple. He -- he -- he crossed the line.

CHERNOFF: CBS has yet to give the talk show host a vote of support and refuses to say whether Imus will be back on the air after his two-week suspension. Allan Chernoff, CNN, New York.

(END VIDEOTAPE)

ZAHN: So, now the question is whether the hugely popular Imus radio show will survive.

Joining me now, Howard Kurtz, who covers the media for "The Washington Post" and CNN.

Howard, I want to start off by reading a part of a statement by the president of NBC News, where he talks about why he is taking him off the air and TV: "My primary concern has been and always will be the integrity of this division. We are the guardians of the good name of NBC News, each and every one of us. There has been a trust placed in us. We must honor and respect this trust. That is, in short, why we have taken this action."

Well, Imus has -- has said a bunch of stuff over the years that has outraged people. Why are they killing the TV show now?

In just a few days, NBC went from putting a statement saying it didn't have anything to do with the content of the "Imus in the Morning" show, to suspending him for two weeks and putting out a tougher statement, saying his remarks were abhorrent, to now pulling the plug altogether.

I think NBC has felt the pressure, and Steve Capus has certainly felt the heat from advertisers dropping out, from some of their own employees -- Al Roker of "The Today Show" calling for Imus to be fired -- and simply concluded that Imus, for all of the high-toned discussions that he has conducted over the years with presidential candidates and with journalists, has simply become radioactive.

ZAHN: We, as employees, always like to think our bosses are listening to us, but don't you think the fact that these major advertisers announced that they weren't going to support this show while it was in suspension is the main reason is why Steve Capus did this?

KURTZ: There's no pressure like advertising pressure. But, had MSNBC wanted to stick with the program, which was lucrative for the network, because it only cost a half-a-million dollars a year -- it's a lot cheaper than putting on news coverage -- they probably could have found other advertisers.

I mean, Imus has gotten a huge amount of publicity, most of it negative, for all of this. If he came back after a two-week suspension, he would probably do a pretty big number. So, I think it's a combination of advertisers bailing out on Imus, pressure both external and internal, and a feeling that NBC News is a brand Capus and others just didn't want associated with these terrible remarks, and, in the process, you know, throwing overboard the career of a guy who has done a lot of controversial things, but who has also done some good broadcasting.

ZAHN: Will his radio show ultimately be killed, too?

KURTZ: I think it is harder for CBS Radio to get rid of Imus. It doesn't mean that the pressure won't succeed, and they may not pull the plug as well.

But he's been with that company for decades. They make a lot of money selling that program to stations across the country. They are -- probably feel more inclined to weigh Imus' career against this admittedly awful, terrible mistake, for he keeps apologizing for.

But, if the intensity of the pressure and the criticism continues at this level, it will be much harder for CBS to stick with him, and perhaps they will feel the need to follow the -- the lead of NBC News.

ZAHN: Howard Kurtz, we will see you a little bit later on when we cover the Duke case. Please stand by.

With me now, though, one of the first people to call for firing Don Imus, Bryan Monroe, president of the National Association of Black Journalists.

But you would like to see him fired altogether. So, are you just half satisfied tonight?

MONROE: Well, I think, you know, the steps that were taken today by NBC is -- is absolutely the right thing to do.

You know, we, at the National Association of Black Journalists, we don't revel in anybody losing their job. But what happened last week, and then the reaction over the last few days, has really sent a signal. And I think the steps that NBC has taken were the right steps.

I just met with Les Moonves at CBS about two hours ago. And they're struggling with this issue, too. And they know what the right thing is to do. And I think...

ZAHN: And the right thing, you think, is to get rid of the radio show, too?

(CROSSTALK)

MONROE: I don't think he should have his show anymore.

(CROSSTALK)

MONROE: He has the ability -- we believe in free speech. But we know that free speech has responsibility. And he can continue to say whatever he wants to say. But this is not about Don Imus. This is -- there's an opportunity right now, as dreadful as the situation is, for us in the media to change the discourse. We don't have to appeal to the lowest common denominator anymore. We don't. We can actually lift it up.

ZAHN: When you say the CBS News president -- or the president of the whole corporation now is struggling with this, did he indicate whether he's leaning one way or the other? Do you think he will kill the radio show?

MONROE: I don't know. I genuinely don't know.

But I know that there -- there -- there are men and women of good character over there who are trying to find the best way to handle the situation. And, you know, I think there's the right thing there. They know what it is.

ZAHN: We have talked an awful lot about integrity of organizations, employees complaining to NBC executives that this kind of intolerance can't be accepted.

But what -- at the end of the day, what did of the pressure of the advertisers pulling have on NBC's decision?

(CROSSTALK)

MONROE: It was significant. GM, American Express, Staples, all the advertisers that -- Procter & Gamble -- they made a decision. It was mainly a business decision, but it was also, who do they want to associate themselves with?

And you go back to the word sponsor. In the old day, it was the patron. You're associating yourself, you're sponsoring an individual or an organization. And they said, this is not us.

ZAHN: Bryan, please stand by. You're going to be joined by some sparring partners here.

Let's go straight to our "Out in the Open" panel, CNN contributor Roland Martin, Crystal McCrary Anthony, a bestselling author and commentator, and Ben Ferguson, a national syndicated radio talk show host.

Roland, how almighty is the dollar tonight? How loudly did it speak to NBC executives?

(CROSSTALK)

ROLAND MARTIN, CNN CONTRIBUTOR: It's called the marketplace. The marketplace always speaks. And that's what -- that's what companies simply respond to. This is about brand protection, Paula.

And everybody does this. Everybody wants to protect their brand. You have advertisers. You know, people GM pulled out. GM, they surely don't want to see people going to their car dealers and picketing. And, of course, they're having problems anyway. And, so, this is all about brand protection. And so they simply did the right thing. But this isn't the first time we have seen advertisers pull out.

ZAHN: Crystal, you obviously think they have done the right thing.

CRYSTAL MCCRARY ANTHONY, AUTHOR & COMMENTATOR: I absolutely think that they have done the right thing.

(CROSSTALK)

ZAHN: What are you imagining CBS is thinking tonight?

ANTHONY: Well, they're in a really tough position, because they're going to have to perhaps follow suit.

I know, for me, as a consumer, as a mother of a black daughter who has a certain texture hair, to hear these remarks, to be in school, as she is, and the only black child there, and the -- the stigma -- I don't even want to repeat the words, because we, as black folks, in our images, we struggle enough as it is with images in the media that don't glorify and honor us or really just treat us with integrity.

I think that they're -- CBS is in a position that they're really going to have to step up to the plate as well, and figure out if they want to be associated with someone who made a comment like this. He's a good guy, probably.

(LAUGHTER)

ANTHONY: I -- I don't know him personally. But he made a bad choice. A lot of careers are broken by bad choices.

ZAHN: The truth is, though, there is much more latitude on radio...

BEN FERGUSON, RADIO TALK SHOW HOST: Yes. That's why he did it for so long.

ZAHN: ... as distasteful as this kind of talk is.

FERGUSON: Yes. That's why he did it for so long. And that's why people listen to him.

I'm a believer in, you're going to see what's going to happen to his career after he comes back on the air. If people stop listening to him, then -- then I guess his comments were over the top, and people don't like him anymore. I mean, this man made a horrible mistake, said something really stupid.

But I guarantee you, 70 stations around the country aren't going to drop him, because they never hired him. They never used him to be some moral character to push the issues. They hired him to entertain people. And that's what he's done. He messed up. MARTIN: Hey, Paula?

ZAHN: What -- yes? Go ahead.

MARTIN: Hey, Paula?

ZAHN: Roland, go ahead.

MARTIN: First of all, a couple of things, a couple of things we have to remember.

First and foremost, Don Imus graduated from being a shock jock. We should stop referring to him as a shock jock. He simply was a part of the establishment, in terms of being a major media player.

But, second, CBS has a very difficult problem. He accounts for 25 percent of their revenue. They already lost Howard Stern. You have the two biggest revenue-generators. And, so, it's going to be a little bit more difficult than it was for MSNBC, which -- which made about $8 million, according to Carol Costello, but didn't spend much.

For CBS Radio, it's going to be a different ball game, whether or not they drop him, because they rely on him so much. And their stock price will take a hit. So, that's going to be an issue.

ZAHN: Need a 10-second answer. What kind of domino effect might this have? We have heard other radio hosts referring to a congresswoman as a ghetto slut.

MONROE: Well, this...

ZAHN: He apologized. He didn't lose his job.

MONROE: The line in the sand has been drawn today.

MARTIN: That's right.

MONROE: This far and no further.

There has to be a certain understanding of what's in bounds and what is out of bounds. And I think NBC just made that clear.

ZAHN: OK, panel, we have got to leave it there.

Roland Martin, Crystal McCrary Anthony, Ben Ferguson, thanks.

And thank you, Bryan, for...

MONROE: Thanks.

ZAHN: ... coming by during the middle of this breaking news. You have been one busy guy today.

One part of the Imus story that hasn't been talked about very much, out in the open next, why his use of the word nappy makes so many black women absolutely outraged. And then later:

(BEGIN VIDEO CLIP)

DAVID EVANS, FORMER DUKE UNIVERSITY LACROSSE PLAYER: I hope that people can realize innocent people can be charged of a crime.

(END VIDEO CLIP)

ZAHN: But now all charges have been dropped in the Duke lacrosse case. Has justice finally been done?

Please stay with us.

(COMMERCIAL BREAK)

ZAHN: Out in the open tonight: the inside story of why the sexual assault case against three former lacrosse players for Duke University completely collapsed today.

The uproar started a week ago, when Imus said these infamous words on his radio show.

(BEGIN VIDEO CLIP, "IMUS IN THE MORNING")

IMUS: Some rough girls from Rutgers. Man, they got tattoos and...

BERNARD MCGUIRK, PRODUCER: Some hard-core hos.

IMUS: That's some nappy-headed hos there, I'm going to tell you that.

(END VIDEO CLIP)

ZAHN: Racist and sexist, and Imus says those words were repugnant, himself.

But the word nappy in particular struck a painful chord with many African-American women, who see it as an attack on their natural hair and ethnic identity. But how insulting is the term, really?

Joining me now to bring that out in the open, two women whose books embrace the word, Linda Jones, author of "Nappyisms: Affirmations for Nappy-Headed People and Wannabes!" and Trisha R. Thomas, author of "Nappily Ever After," which is being made into a movie starring Halle Berry.

Good to see both of you.

Linda, I'm going to start with you tonight.

What exactly does nappy mean, and is it necessarily an awful thing to say?

LINDA JONES, AUTHOR, "NAPPYISMS: AFFIRMATIONS FOR NAPPY-HEADED PEOPLE AND WANNABES!": It depends on who's saying it and how they're saying it.

Nappy is simply a description. It's a texture of hair. It describes kinky-textured hair. But it has been used in a derogatory way. And, certainly, that's the way Don Imus used it.

ZAHN: So, Linda, if another black person said to you, you're nappy, that wouldn't -- you wouldn't be offended by that. But, if I were to say that to you, you would be?

JONES: No.

ZAHN: No, you wouldn't...

JONES: It depends on how you would say it. My hair texture is nappy. And there's nothing wrong with being nappy.

People tend to -- tend to get nappy mixed up. They think it's synonymous with being unkempt and unclean and so forth when people decide they want to go to their natural hairstyles. And that's not the case. So, like I said, it depends on how -- how the person uses it. But, no, I wouldn't have a problem with anybody saying that I'm nappy.

ZAHN: Trisha, I understand your daughter was called nappy. And that was traumatizing for her in school one day.

TRISHA R. THOMAS, AUTHOR, "NAPPILY EVER AFTER": Absolutely.

When she was in 8 or 9 years old, she came rushing home, tears in her eyes, because her friends called her nappy-headed. And these are friends. And the term is very insulting when it's used maliciously.

And it's not about whether or not your hair is nappy or is extremely textured. I mean, there are degrees of texture for your hair. But the term does imply that you're uncombed or you're dirty or -- when it's used maliciously, that's how it's interpreted.

ZAHN: So...

THOMAS: And I love the word nappy. I hope and I pray that this doesn't become another N-word, you know, that now we can't say it, because it's been tainted.

ZAHN: So -- right.

JONES: It has been. It has been.

ZAHN: So, Linda, here's what I want to know. If -- if Imus had not used the word ho after the word nappy, would his television show have been killed, and would we be talking about the potential end of his radio career?

JONES: Probably.

THOMAS: I don't think so.

JONES: Probably so.

(CROSSTALK)

ZAHN: Probably so.

Linda.

JONES: Probably so.

I think people get more upset about the word nappy, unfortunately, than the other word that he used, because it's used so much in rap, which I don't endorse either.

I think that, once again, the way he used it would get people so upset, because of the conditioning to believe that there's something negative about it.

ZAHN: Sure.

(CROSSTALK)

ZAHN: And what about combination of those two words, Trisha?

THOMAS: I don't think so.

ZAHN: I mean, you actually said a second ago you like the word nappy. If he hadn't said ho afterwards, do you think the nation would be debating this tonight?

(CROSSTALK)

THOMAS: I think it changed the -- the pain of it, the degree of pain of it. It still -- he could have said kinky-headed hos. He could have said frizzy-headed hos. It still would have hurt to the same degree.

But I do think he took the word and the term and turned it into something ugly. I mean, women all over the world are affected by their hair. You can't disregard how important hair is. It doesn't matter what your culture, what your language. Hair, for women, is a big deal. And, when you use it in that term, and then on top of it call someone out of their name, they're a ho, they're this...

ZAHN: Right.

THOMAS: I mean, it's...

JONES: But, once again, we need to look at this, that...

(CROSSTALK)

ZAHN: OK. JONES: ... if those young ladies decided to go nappy, they would be just as beautiful.

ZAHN: Right. All right.

JONES: OK?

ZAHN: We have got to leave it there and move on, so much breaking news to talk about tonight.

Trisha Thomas, Linda Jones, thanks.

JONES: Thank you.

ZAHN: And we move on now -- tonight's other big story, the Duke lacrosse case and why it collapsed.

(BEGIN VIDEO CLIP)

ROY COOPER, NORTH CAROLINA ATTORNEY GENERAL: We believe that these cases were the result of a tragic rush to accuse and a failure to verify serious allegations.

(END VIDEO CLIP)

ZAHN: Out in the open next: why all charges against the players have been dropped and who may be in big trouble now.

Also: a really different take on the war in Iraq. Coming up: Why are so many members of the Iraqi police force shopping for Valium and Viagra?

(COMMERCIAL BREAK)

ZAHN: Out in the open tonight: the truth in the Duke University lacrosse case. And a lot of people were dead wrong.

We have been bringing this story out in the open now for more than a year, starting with a black woman's allegations that she was raped by some white players on the team.

Well, just hours ago, North Carolina's attorney general announced that all charges against the Duke players are being dropped. And he slammed the original prosecutor for what he called a tragic rush to accuse.

Our Jason Carroll has been on the story from the very beginning, and he has more for us now.

(BEGIN VIDEOTAPE)

JASON CARROLL, CNN CORRESPONDENT (voice-over): These three former Duke lacrosse players described this past year as the most painful year of their lives.

Last spring, Collin Finnerty, Dave Evans, and Reade Seligmann were accused of brutally raping an exotic dancer hired to perform at a team party. The three young men maintained their innocence, but were indicted and arrested by Durham's ambitious district attorney, Michael Nifong.

Today, the players and their families finally heard the North Carolina attorney general echo what they had insisted all along was the truth.

ROY COOPER, NORTH CAROLINA ATTORNEY GENERAL: Based on the significant inconsistencies between the evidence and the various accounts given by the accusing witness, we believe these three individuals with are innocent of these charges.

CARROLL: During an emotional news conference, the three players thanked their families and their attorneys, and described what it feels like to be publicly vindicated.

DAVID EVANS, FORMER DUKE UNIVERSITY LACROSSE PLAYER: It's been 395 days since this nightmare began. And, finally, today, it's come to a closure.

COLLIN FINNERTY, FORMER DUKE UNIVERSITY LACROSSE PLAYER: Knowing I had the truth on my side was the most comforting thing of all throughout the past year.

CARROLL: During an unusually candid news conference of his own, the attorney general dismissed the kidnapping and sexual assault charges against the players, calling the case a tragic rush to accuse.

Roy Cooper called Michael Nifong a prosecutor who overreached his authority.

COOPER: The Durham district attorney pushed forward unchecked. There were many points in this case where caution would have served justice better than bravado, and, in the rush to condemn a community and a state, lost the ability to see clearly.

CARROLL: Defense attorneys also criticized how the media initially covered the case.

JIM COONEY, ATTORNEY FOR READE SELIGMANN: If they had done what journalists are supposed to do and spoken truth to power, they could have slowed this train down.

CARROLL: But the harshest criticism was clearly leveled against Nifong, who, for several months, publicly criticized the players at every turn, then did than an about-face in January and asked the attorney general to take over the case. Nifong now faces ethics charges from the state bar for allegations he mishandled the case and kept exculpatory evidence from the defense. Nifong hasn't publicly responded to those allegations.

Reade Seligmann said Nifong didn't do enough to uphold the moral obligations of his office.

READE SELIGMANN, FORMER DUKE UNIVERSITY LACROSSE PLAYER: If police officers and a district attorney can systematically railroad us with absolutely no evidence whatsoever, I can't imagine what they would do to people who do not have the resources to defend themselves.

CARROLL: Defense attorneys say the final act of justice should be to remove Nifong from office and have him disbarred.

(END VIDEOTAPE)

ZAHN: So, Jason, what can you tell us about the accuser's reaction to this news today?

CARROLL: Well, one of the accuser's relatives did come out and say that the family is extremely upset about the attorney general's decision. They say that something happened at that Duke lacrosse house, and they wanted to see someone pursue the charges against these three young men -- Paula.

ZAHN: Jason Carroll, thanks for the update. Appreciate it.

And I want to turn now to two legal experts who have been keeping a close eye on this case, CNN senior legal analyst Jeffrey Toobin and Court TV anchor Lisa Bloom

Welcome, both.

LISA BLOOM, COURT TV ANCHOR: Thank you.

ZAHN: Wow. What a news conference today.

BLOOM: Yes.

ZAHN: Can you remember an attorney general stating so clearly that a rape had not taken place, Jeffrey?

JEFFREY TOOBIN, CNN SENIOR LEGAL ANALYST: He used -- he used a word that you almost never hear prosecutors use. Prosecutors usually say, there's not enough evidence to proceed. He said, these three young men are innocent.

Innocent is not a word that prosecutors use. He used it very intentionally. And I think it's very significant. And it's a real legacy of this case.

ZAHN: He was very tough on Mike Nifong, district attorney. Are you going to tell me tonight, Jeff, then, at the end of the day, that this rush to judgment on Nifong's part was all about being reelected?

TOOBIN: That's the only conclusion I can draw at this point.

When you look at the timing of this case, when you look at the fact that these were not fugitives -- he did not have to move quickly in this case. He could have waited for the DNA evidence and other evidence to come back. The only deadline he appeared to be worried about was his Democratic primary, where he needed to appeal to the black vote, which bringing this case did.

Unfortunately, the only explanation that makes sense to me is the most cynical one.

BLOOM: I think it's possible that he did what a lot of attorneys do, which is, he dug in. He didn't have enough information, but he believed in the case. He became a true believer.

Yes, he overstepped, calling them hooligans before there was sufficient evidence. But he came to take the side of this woman who he thought was wronged. Initially, he made improper statements. And that's why the state bar is reviewing it, for calling them hooligans. He also did an improper photo I.D. lineup. And he didn't release DNA evidence that was exculpatory. Those are his real errors.

ZAHN: Jeff, let's talk about the accuser for a moment, and replay a small part of the news conference, when the attorney general suggested today that she has some real problems.

Let's listen together.

(BEGIN VIDEO CLIP)

COOPER: She may actually believe the many different stories that she has been telling.

And, in reviewing the whole history, there are records under seal that I'm not going to talk about, but we believe it's in the best interest of justice not to bring charges. And we have made that decision as well.

(END VIDEO CLIP)

TOOBIN: In other words, she's crazy, not evil.

ZAHN: Right.

TOOBIN: And that's why they're not going to prosecute her for obstruction of justice and lying to the authorities.

I don't know. I mean, those records are under seal. I haven't seen them. All the more ...

ZAHN: He's not going to say that unless there's some evidence that she truly believes the multiple stories she told.

BLOOM: Rape cases are hard, Paula. And they're hard, because the normal rape victim who actually was raped is going to change her story, maybe in significant ways. The story is going to evolve.

So, now we can look back on it and say, she changed the number of accusers. She changed the sexual acts in terms of what was alleged. And she changed them always to be consistent with the new evidence.

(END VIDEO) ZAHN: As you just heard, a lot of people blaming prosecutor Michael Nifong for what they are calling a tragic rush to condemn the Duke players. But they say the media's coverage made things even worse.

(BEGIN VIDEO CLIP)

JOE CHESHIRE, ATTORNEY FOR DUKE LACROSSE PLAYER: Nothing but simple hucksters, unrestrained by truth and integrity. And you all know who you are.

(END VIDEO CLIP)

ZAHN: Ouch! Out in the open next. The making of a media firestorm.

And then a little bit later on, an eye-opening look at real life in Iraq. Why are so many of the Iraqi soldiers and police, that the U.S. happen to be training, shopping for antidepressants?

(COMMERCIAL BREAK)

ZAHN: Coming up in this half hour, a part of everyday life in Iraq you've got to see to believe.

Out in the open, 13-year-olds selling drugs to Iraqi police and soldiers.

And we'll continue our weeklong series, "Debtor Nation," by exposing a shady practice that got thousands of people into homes they couldn't possibly afford.

And then at the top of the hour on LARRY KING LIVE, candidate Al Franken's first primetime interview since entering the race for the U.S. Senate.

Now that the charges in the Duke lacrosse case have been dropped onto the breaking news, we want to take a hard look at how that rush to judgment happened. Out in the open tonight, the media's role.

When the story broke 13 months ago, it became a nationwide sensation, thanks to the way the media shaped the story into a confrontation between stereotypes -- a black stripper and a roomful of rich, white jocks.

Once again, here's contributor, Howard Kurtz.

(BEGIN VIDEO)

HOWARD KURTZ, CNN CONTRIBUTOR, CNN'S "RELIABLE SOURCES" (voice- over): From the moment last spring that three Duke University lacrosse players were accused of raping a young woman, who had been hired to strip for some members of the team at a party, the story rocketed into the media stratosphere.

UNIDENTIFIED FEMALE: Now to that explosive Duke sex scandal. MATT LAUER, ANCHOR, NBC "TODAY SHOW": First we want to talk more about the Duke rape case.

BOB SCHIEFFER, CBS NEWS: The case that has rocked one of America's elite college campuses and divided the community around it.

BROOKE ANDERSON, CNN HOLLYWOOD CORRESPONDENT, "SHOWBIZ TONIGHT": It's the story that everybody is talking about. Television can't seem to get enough of it -- the Duke University rape case.

KURTZ: And there were, to be sure, developments that were hard to ignore. The university canceled the rest of the lacrosse season. Mike Nifong, the D.A. in Durham, North Carolina, obtained indictments against the three players.

Their denials that any sexual contact had taken place were duly reported, but did nothing to quiet the media frenzy.

"Newsweek" put the defendants' mug shots on the cover.

What would have been a local crime story needed a larger narrative to go national, a narrative that media organizations rushed to provide.

ABC's Elizabeth Vargas raised the question of whether college athletes feel they are above the law.

CBS's Trish Regan: "There's a sense that it's the wealth and the privilege and the power behind this university that's protecting these students.

CNN was no exception.

TONY HARRIS, CNN ANCHOR: Pampered, privileged athletes getting away with just about everything. Does that sound like Duke to you?

UNIDENTIFIED MALE: If this were black athletes, would they be in jail right now? Yes.

KURTZ: Camera crews were dispatched to the players' homes in New Jersey and Long Island, as journalists pumped up the angle that these were affluent white kids, while the unnamed accuser was a single mother who went to a black college in Durham -- a stark contrast built on the assumption that they had abused her.

Sportswriter Christine Brennan says the coverage was an embarrassment.

CHRISTINE BRENNAN, SPORTSWRITER, USA TODAY, ABC NEWS : We saw a story -- all of us around the country, and especially, I think, TV, but the print media, too -- and just went wild. It was a wildfire just raging out of control.

KURTZ: And no expertise was required to sound off.

CLARENCE PAGE, "CHICAGO TRIBUNE": When you get this debate set up between people who were never even there aren't even in the town, don't know much about it, but they start talking more in the abstract about race and gender and class, and then you get this much larger drama going on, that stirs up talk around the country and stirs up circulation and ratings, too.

KURTZ: Newspapers joined the stampede, as well. A "Washington Post" story began, "She was black, they were white, and race and sex were in the air."

A "USA Today" headline: "Race and sex cast long shadow over Duke."

"New York Times" columnist, Celina Roberts, wrote of a male locker room culture that encouraged "the tacit acceptance of denigrating behavior."

BRENNAN: To turn it into racial terms, it's just made for cable television. It's made for the bloggers, for the Web sites. It's made really for all of us, even those of us who consider ourselves in the mainstream, more reputable media.

KURTZ: It was like a mini-replay of the O.J. Simpson trial, with the pundits choosing up sides.

CALLIE CROSSLEY, MEDIA COMMENTATOR: Then you have this incident, which is really based on what the Old South was all about, that historical context of the sublimation of black women by white men.

SEAN HANNITY, HOST, "HANNITY AND COLMES" ON FOX: We don't have, at the end of the day here, not one little, itty-bitty bit of evidence from this D.A. -- not one.

KURTZ: Journalists gradually turned more skeptical as the case began to crumble.

PAGE: These kids for the rest of their lives are going to be known as the Duke rape case suspects.

(END VIDEO)

ZAHN: All right, Howard, if we haven't heard enough criticism yet in that piece, I want to share with the audience something that Joe Cheshire had to say.

He was one of the attorneys representing one of the Duke lacrosse players when he talked about the coverage a year ago. Here's what he had to say.

(BEGIN VIDEO CLIP) JOE CHESHIRE, ATTORNEY FOR DAVE EVANS: Last year, when the press was completely out of control, when these boys were the guiltiest people on the face of the earth, and I looked at you national media and you local media and I said -- kind of scared when I said it -- but I said, "You all are wrong. And when this case is over, you're going to be embarrassed."

(END VIDEO CLIP)

ZAHN: Well, I guess you proved that everybody's got a black eye in this one.

What do the media owe these kids?

KURTZ: An apology, frankly, which they're not going to get. And all the commentary I've seen and in analysis on the air today, it's all about what the prosecutor did wrong, how the legal system didn't work -- very little about the media's role here in pumping this up into a national frenzy.

The legal miscarriage of justice in this case, Paula, ended today. But the media miscarriage and the stains from that are going to linger for a long time.

There's talk that the prosecutor, Mike Nifong, might possibly get disbarred as a result of this (UNINTELLIGIBLE). But you can't disbar the media.

And I really think this was a classic case of not being able to resist these themes of race and crime and sports in an elite university. And I really think we fell down on the job.

ZAHN: Can you tell that story, though, without mentioning, you know, what the school's associated -- everybody considers it an elite university. And can you tell the story without talking about the background of the accuser?

KURTZ: You can tell the story. Obviously, once those indictments came down, the story had to be reported.

It was a frenzy, though, in terms of cable and the morning shows and the newspapers and the "Newsweek" cover, and all of that.

It's a question of tone and volume. And we pumped it up into "Are athletes out of control" and racial stereotypes, and all the things we now decry in other cases.

I certainly don't say the story shouldn't have been covered. It should have been covered with a lot more restraint.

That defense attorney is right. We have a big black eye tonight.

ZAHN: Howard Kurtz, thank you for the update. Appreciate it.

KURTZ: Thank you. ZAHN: Today we learned that U.S. Army troops will have longer tours of duty in Iraq. But they aren't the only soldiers under constant pressure.

Out in the open next, Iraqi police popping pills just to cope.

(COMMERCIAL BREAK)

ZAHN: Tonight, two more American soldiers have died fighting in Iraq, and the bodies of at least 20 murdered Iraqis have been found in Baghdad and Mosul.

By one estimate, at least 61,000 Iraqi civilians have been killed in the war.

But you may wonder how Iraqis can survive mentally, surrounded by this endless violence.

Well, we have found an answer on the black market. They are buying drugs, but not the kind of drugs you might think.

No, they are after antidepressants.

Tonight, Kyra Phillips brings out in the open a side of life in Iraq you have never seen before.

(BEGIN VIDEO)

KYRA PHILLIPS, CNN CORRESPONDENT, BAGHDAD (voice-over): I have never seen anything like it.

An armed national Iraqi policeman just walking into a pharmacy and buying this: valium and cough syrup with codeine to get high -- a combination pharmacist Osama Mohammed says Iraqis buy every day.

"The demand just keeps getting greater," Osama says, "as the security situation gets worse. I know what my clients want just by looking at their faces."

Ibrahim Abdul-Aziz comes here for antidepressants. He says they make him feel less nervous.

"I hear explosions while sitting in my house. We hear the bangs when we leave the house," Ibrahim tells me. "I just want relief from everything. Without them, I feel crazed."

Osama says the psychological effects of this war are overwhelming, so Iraqis pop pills. Valium and Prozac are favorites.

Osama says the violence is destroying men's sex drives, too. Viagra is now his hottest seller.

"I sell more than 10 packets of Viagra a day, plus tonics to activate an erection," Osama tells me. "The psychological effects of the explosions, killing and dead bodies are affecting everyone." PHILLIPS (on camera): Osama says his customers come in here every day for Viagra and/or antidepressants, and he monitors every single one of them, because he's concerned about overdose. That's why the black market is booming.

PHILLIPS (voice-over): Thirteen-year-old Hazim Salim says he's not only top of his class, but he's the top Viagra vendor in the neighborhood.

When asked, "Who taught you about these medicines," Hazim says, "I taught myself."

Hazim sells a packet of Viagra for $1. It costs twice that in the pharmacy. Most of these vendors tell me they get these medicines from smugglers.

You can find a pill for almost every ailment -- diabetes, bone disease, stomach pains. There's antibiotics, painkillers, even vitamins. Strike a deal and you get your drug.

"We come here," this man tells me, "because we get things we can't get in a pharmacy. It's easy."

An easy fix for temporary moments of peace in a war zone.

(END VIDEO)

PHILLIPS: Now, Paula, I sat down with the minister of interior. This is the man that is in charge of all Iraqi police forces.

And I said, "Look, I have one of your armed men on camera buying valium and cough syrup to get high."

And you know what, Paula? He didn't deny there's a problem.

"We want to fight these activities. They're very dangerous materials which affect the health of the human. And when we get reports of our policemen using drugs, we investigate. We're trying to find solutions to these problems, and to the addiction."

So, Paula, not only are they dealing with easy access to these drugs, they're looking for some type of relief. But now they're dealing with the issue of addiction.

ZAHN: And, of course, I guess the saddest thing about all this at all is what you've reported. They don't want to do any drug testing, because that would discourage people from enlisting to do this kind of work.

Fascinating, Kyra. One of the unexpected consequences of this war.

Kyra Phillips reporting from Baghdad for us tonight.

We're going to change the subject now. When we come back, a record number of homes on the auction block. How did so many people get in over their heads? Listen to this.

(BEGIN VIDEO CLIP)

ANDREA BOPP STARK, ATTORNEY: She was making $10 an hour at the time she applied for that loan.

(END VIDEO CLIP)

ZAHN: Not only that, she could barely read or speak English.

Coming up next, our series, "Debtor Nation," looks at who is to blame for this giant mess.

(COMMERCIAL BREAK)

ZAHN: By the end of the year, there is a pretty good chance your house will be worth less than it was last year.

Today, the National Association of Realtors said it expects the median price for existing homes to drop for the first time in 40 years.

That's the result of the disaster in the subprime mortgage market, which has lenders tightening the standards for getting loans. But it is too late for the woman you are about to meet now.

Our special series, "Debtor Nation," continues with a story of an American dream that has turned into an absolute nightmare.

Personal finance editor, Gerri Willis, has tonight's biz break.

(BEGIN VIDEO)

GERRI WILLIS, CNN PERSONAL FINANCE EDITOR, NEW YORK (voice-over): Isabel Frias arrived from the Dominican Republic 13 years ago. She dreamed of owning a home for herself and her three children.

ISABEL FRIAS, LOST HER DREAM HOME (voice of translator): The hope and the dream was always based on my kids. I have always wanted them to have a yard to play in.

WILLIS: It took a decade of hard work, but finally it came true.

WILLIS (on camera): This the house Isabel Frias dreamed of owning. And she did, only to have to leave it again eight months later.

WILLIS (voice-over): In early 2005, her then-boyfriend introduced her to a friend in the mortgage industry.

FRIAS (voice of translator): I trusted him as I trusted my boyfriend, as well. And one day we sat down and he said that he could get us a loan. WILLIS: Isabel got two loans totaling more than $300,000 -- far more than she should have qualified for on a $20,000-a-year salary.

ANDREA BOPP STARK, ISABEL FRIAS' ATTORNEY: She was making $10 an hour at the time she applied for that loan. And on the loan application it does state that she's a machine operator.

She was paying $400 a month in rent. And that's what the application said. Yet the loan was still funded.

WILLIS (on camera): Immigrants like Isabel were easy prey for rogue mortgage brokers, more concerned about making big commissions than helping their clients.

FRIAS (voice of translator): The day of the closing, everything was done in English and everything was done in a rush.

I was simply told to start doing my wrist exercises, that I will be signing a lot of documents.

WILLIS (voice-over): A month later, the first mortgage bill arrived. And it was $1,000 more than Isabel expected, and more than she could afford.

Like many immigrants, Isabel had unknowingly taken out a subprime loan, a loan for people with imperfect credit or few assets.

Subprime and other nontraditional loans make it possible for people who don't qualify for standard mortgages to buy homes.

But the higher fee and payment structures also raise the danger they will fall behind on their mortgage. And that can ultimately lead to foreclosure.

ARACELY PANAMENO, CENTER FOR RESPONSIBLE LENDING: For Latinos specifically, for the year 2005, 375,000 mortgages -- subprime mortgages -- went to Latinos. And of those, we anticipate that 73,000 mortgages will fail.

So, we're talking about 73,000 families that will lose their American dream. It turns into an American nightmare.

WILLIS: For Isabel, the nightmare began with that very first mortgage payment.

FRIAS (voice of translator): My boyfriend and I tried very hard to come up with the money to continue paying the mortgage. But I knew in my heart that it was too much.

WILLIS: It was a downward spiral -- losing her boyfriend, her job and finally her home.

WILLIS (on camera): Who do you blame?

FRIAS (voice of translator): Well, I'm not going to tell you that I gave the broker all the blame. I think he has 90 percent of the blame.

However, I also have to blame myself, because I was ignorant. I was too trusting. I did not seek out information. I did not educate myself. And because of that, I am also to blame for what happened.

WILLIS (voice-over): The mortgage industry's leading consumer watchdog group isn't so sure.

PANAMENO: Documents are drafted in industry jargon and legal jargon, that even for those of us who are college educated and who are fluent in English or native English speakers, it is difficult for us to understand.

WILLIS: Not surprisingly, the mortgage industry takes a different view.

MARC SAVITT, NATIONAL ASSOCIATION OF MORTGAGE BROKERS: It's important to make sure that they are fully informed. And if they're not understanding the process, then they need to remove themselves from the table and make sure that they find somebody who can help them understand the process better.

WILLIS: Now that she's $80,000 in debt, Isabel certainly understands the process a whole lot better. But she's not sure whether she'll ever own a home again.

FRIAS (voice of translator): I hope to be able to buy a home someday. However, in the meantime, all I want to do is fix my credit, make sure I move forward, even if that means just renting an apartment and making sure my kids are OK.

WILLIS: Gerri Willis, CNN, New York.

(END VIDEO)

ZAHN: And we are just minutes away from LARRY KING LIVE. Al Franken will talk about his race for the U.S. Senate. First primetime interview since he announced.

We'll be back.

(COMMERCIAL BREAK)

ZAHN: And that wraps it up for all of us here tonight. Thanks so much for joining us. We'll back same time, same place, tomorrow night.

Good night.

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